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Bank Guarantee

Bank G uarantee

When running a business, you might come


across a situation that your client may ask
you to provide a financialguaranteefrom a
third party. In such circumstances, approach
yourbankand ask it to stand as a
guarantor on your behalf. This concept is
known asbank guarantee(BG).
A guarantee from a lending institution
ensuring that the liabilities of a debtor will
be met. In other words, if the debtor fails to
settle a debt, the bank will cover it.
When strangers do business with each
other, trust is the glue that holds the
transaction together. When parties to a
transaction are located in different
countries, the concern arises that an
aggrieved party might not be able to
enforce its legal rights. In such transactions,
trust is easier to maintain if a third party is
willing to guarantee protection of the
parties' potential liabilities. Banks offer

Types of Bank G uarantee


Indirect Guarant
ee
Advance Payment Guaran
Advance Payment Guarantee
tee
Performance Guarante
Performance Guarantee (Performance bond)
e
Payment Guarantee
Payment Guarantee
Indirect Guarantee

Conditional Payment Guarantee


Guarantee Securing a Credit Line
Order & Counter Guarantee

Conditional Payment Guaran


tee
Credit line Guara
ntee
Order & counter Guarante
e

Click here for more infor


mation

Direct Guarantee

Direct
Guarantee

Bank
Guarantee

D irect G uarantee & Indirect G uarantee


A Direct Guarantee where the account holder instructs
his bank to issue a Guarantee directly in favor of the
Beneficiary.
An Indirect Guarantee where a second bank is
requested to issue a Guarantee in return for a counterGuarantee. In this caseAdvance
the Issuing Bank
indemnify
Paymwill
ent
losses made by this second bank in the event of claim
G uarantee
against the Guarantee
An advance payment bond ensures repayment to the
importer of any advance payments they havemade (usually
an agreed percentage of the contract amount (typically
10%-30%) if the exporter does not fulfill its contractual
obligations.)
This enables the employer to get a refund of advance
payments made in the event of default by the contractor. It
is issued for the full amount of the advance payment, but
may contain reduction clauses, which enable a reduction in
the maximum amount upon evidence of progressive
performance.

Perform ance G uarantee


A performance bond safeguards the importer should
the exporter fail to meet its contractual obligations.
Performance bonds are usually issued for 10% to 20%
of the contract amount but may be fixed by the local
law of the importer's country.
Performance Guarantee Normally issued for an
amount equal to between 5 and 10 percent of the
contact value, this guarantee assures payment to the
employer in the event that the contractor fails to fulfil
Paym ent G uarantee
contract obligations.
A payment guarantee ensures payment to the exporter if
the importer does not fulfill its payment obligations.
A payment guarantee can be issued in the form of an
endorsement on a draft, also known as an aval.

ConditionalPaym ent G uarantee


Aconditional bank guaranteecan be where the
issuingbankis only liable upon proof of a breach of
the contract by the builder, and where the proprietor
sustains a loss as a result of the breach.2 In this
situation, the issuingbank'sliability only arises
following a default by the builder under the contract.

Credit Line G uarantee


If you intend to monetize or credit line a Bank Guarantee
that you have received (or due to receive), it is important to
ensure that the Guarantee contains no onerous conditions
and that it is worded specifically for monetizing. Draft Bank
Guarantee wordings specifically used for securing credit
lines. These draft documents are accepted by mainstream
banks for monetizing.

For M ore Inform ation Visit H ere :


NumeroUno Bank Guarantee
Corporate Office:
No. 109/1B, Varun Arcade, 1st Floor,
Nr. Laukim Industries, Opp. R-Mall,
Ghodbunder Road, Thane (W) 400 610
Maharashtra, INDIA
Call Us: +91 22 2589 2955
Email:info@numerouno.net.in
Websits:http://www.numerouno.net.in/bank_guarant
ee.html

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